Law of Diminishing Returns and Its Examples

Vinish ParikhSeptember 27, 2010

Law of diminishing returns is a concept of economics, according to which as one begins to increase the input of the resources for production, a point will be reached beyond which output will not increase in the same proportion as that of input. It is also called law of diminishing returns or law of increasing relative cost.

Law of diminishing returns can be better understood with the help of a real life example, suppose if you are thirsty then as soon as you get water to drink, the first glass of water will give you the most satisfaction, and second glass of water will give you less satisfaction, and chances are that when you start to drink third glass of water then you will not finish it. Another example of it can be of agricultural land, other things being same, if there is one worker working in agricultural land it will produce less output, but if number of farmers are increased to 5 then it will result in more output, however if they are increase to 10 then it will not result in same proportion of increase in output as the increase in input.